You're In The Delivery Business. Delivery Is Also A Competitive Threat. Is It An Opportunity Too?

by Paul Schlossberg

Posted On: 4/29/2019

Paul Schlossberg

In case you have not considered it, you are in the delivery business. The food, snacks and beverages we sell must be moved from our warehouses to the locations we serve.

While performing those deliveries. we must protect the quality and food safety of these products. Cold food and frozen food must be kept at proper temperatures. The same for any hot food we might handle. Candy, especially chocolate, must not be exposed to heat which would ruin the product. Most of the beverages we sell can be handled at ambient temperatures without extra attention. If you sell and transport ice cream and other frozen novelties, you're well aware of ice cream cold handling and storage.1

We've written about delivery here on more than a few occasions. Maybe you've read my July 2018 blog posting, "Is Delivery Your Toughest Competitor?" I recommended that you make a few purchases by using some of the new order/delivery apps being offered by an expanding number of restaurant chains and other food retailers.

But our focus today is to share some insights about delivery from two perspectives. First, what will our current shoppers (and, as you'll see, our future shoppers too) want from delivery? Second, are the economics of delivery a good thing or a bad thing for all of the competitors who have added delivery service in the last year or two?

Younger Shoppers Are Learning About Delivery At School

The potential risk of losing sales to delivery is increasing for our industry. A Wall Street Journal article –"Fast Times and Fast Food at Today's High Schools" – described the increasing impact of food delivery at high schools. For the moment, our sales are not being cannibalized by delivery. Allow me to explain. High school students are ordering lunch or snacks to be delivered to them at school. The article notes. "Online food-ordering platforms have made servicing college campuses a priority – a strategic move to win customers young in hopes they will grow up to become loyal adult eaters."

The key words in the last sentence above are in italics (my emphasis). If these younger shoppers learn that food delivery is easy to do and gets them their favorite foods and beverages, it is almost a certainty that the same behavior will continue when they "graduate" into their "adult" jobs and workplaces. When that happens, your sales will be cannibalized.

Pay attention to the last six words here (my emphasis). They're losing money on most delivery orders.

There is a lot of data for you to digest in the article. Delivery is currently about 7% of restaurant sales. It is forecasted to reach about 10% by 2022. Online sales for restaurants is estimated to be $25 billion and projected to increase to $62 billion in 2022.2

The deliveries are from orders placed at restaurant websites or third-party restaurant platforms. In the article is a very important chart detailing the difference for a restaurant between the same meals consumed on premises versus delivery. A $30 check on premises translates to a $25 check for delivery. The profit difference is huge: $20.75 (69%) on premises versus only $9.63 (39%) when delivered by an outside third party. The typical cost for delivery for food sellers is reported to be between 10% and 25% of the order total.

What are people willing to pay for restaurant delivery? "… 85% of consumers aren't willing to pay more than $5 for restaurant delivery," according to a recent survey of 2,000 fast-food and fast-casual customers conducted by online ordering platform Tillster. If someone is ordering in a restaurant delivery, they can spread the delivery cost, if they can convince other colleagues to also order in a meal. When that happens, you have been cannibalized, losing one or two (or more) sales that day.

For restaurant operators, providing a delivery option is a convenience for their shoppers. There are times when people cannot get out of the office for lunch. That delivery is probably an added sale that day – except that it might not be profitable.

There have been billions of dollars invested in the third-party delivery companies. The leading players include Grubhub, Uber Eats, DoorDash, Postmates, Caviar et al. You can observe these companies in financial news. Invest or not – that's your decision.

Pay attention to delivery. It will be an increasingly important part of food sales in coming years. Maybe, one day not too far in the future, your company will be accepting orders for delivery. Will it be for freshly-prepared foods, or packaged snacks or beverages? Delivery might be another step on the path to selling more stuff.

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1 According to the International Dairy Foods Association "Your freezer should be set at between -5°F and 0°F."2 Source: William Blair & Co.

» Paul Schlossberg is president of D/FW Consulting, working with clients
to merchandise and market products in impulse-intense selling
environments, such as vending, onsite foodservice and convenience
stores. Based in the Austin, TX, area, he can be reached at Paul@DFWConsulting.net or (972) 877-2972 or www.DFWConsulting.net.